What's going on?
News broke on Wednesday that consumer goods giant Unilever is reportedly in talks with pharmaceutical company GlaxoSmithKline (GSK) to buy its Indian nutrition business – which includes bedtime favorite Horlicks.
What does this mean?
GSK’s first female CEO has been on a mission to streamline the company, focusing on its most profitable pharmaceutical divisions. GSK put the nutrition business up for sale earlier this year, with Nestlé, Unilever, and Coca-Cola all bidding to guzzle it up.
It now looks like Marmite maker Unilever is set to win the auction, paying around $3 billion for GSK’s 72.5% stake. Horlicks might have weird connotations in some countries, but Unilever’s no fool: Horlicks is the most popular health drink in India, with around $510 million in annual sales. Unilever probably thinks it can increase this number: it runs a well-oiled sales programme in rural India to get goods into consumers’ hands (and mouths).
Why should I care?
For markets: Gobble gobble gobble.
The consumer staples industry (which includes food, drinks, and toiletries) has seen record levels of mergers and acquisitions in recent years. Sales growth is slowing and profits are under pressure – so companies are consolidating as an alternative way of growing. Hot drinks are particularly, well, hot: Coca-Cola recently bought Costa Coffee for $5 billion. But consumer goods is a temperamental market. Sugary Horlicks is losing its healthy reputation in India as more people are diagnosed with diabetes, and tastes are constantly changing – as Kraft Heinz found out last month with its disappointing sale of a Horlicks competitor.
The bigger picture: India is the new China.
India is many companies’ most important emerging market. The country is set to have a bigger population than China within a few years, yet China’s economy is almost five times bigger. That suggests that there’s money to be made in the coming India, and companies don’t want to miss out on selling to its fast-growing middle class.